Tuesday, 10 August 2010

Were pirate ships firms?

In his recent book, The Invisible Hook: The Hidden Economics of Pirates (Princeton University Press, 2009), Peter Leeson argues that pirates were firms - or firm-like organisations, at least. In a new paper, Bylund (forthcoming), Per L. Bylund takes issue with this. Bylund writes,

But no succinct reasons for the assumption that pirates were entrepreneurs (in the layman sense) are given, so the reader is expected to accept the author’s judgment. This is problematic since the economic theory and illustrations provided in the book show only how pirate institutions supported their organization and purpose—not necessarily that the organization entailed a firm. Undeniably, that the pirates were formally and even contractually organized, and their collective endeavor motivated by profit, are certainly common and even necessary traits of firms. But they are not sufficient conditions.

Bylund goes on to say,

Contrary to Leeson’s view, pirate organization seems strikingly similar to that of traditional cooperatives

Bylund seems to see cooperatives as being something different from firms (tell that to Fonterra!!), in particular different from investor-owned organisations. But as Henry Hansmann argues all forms of businesses can be as cooperatives, even investor-owned ones:

In fact, the conventional investor-owned firm is in a sense nothing more than a special type of producer cooperative-a lenders' cooperative, or capital cooperative.

So I don't see why even if pirates were a cooperatives this stops them being a firm. I tend to agree with Leeson in his reply to Bylund, Leeson (forthcoming), when he writes,

I am fine with calling pirate crews “cooperatives” provided that we recognize that pirate cooperatives organized team production for the purpose of making profit — i.e., as long as we consider a “cooperative” a variety of firm rather than a separate category of economic organization. I do not care much what we call pirate crews. But if we want to understand them, we cannot ignore their fundamentally firm-like features.

If I wanted a reason to say pirates were not firms it would be that they didn't produce for outsiders. Normally when we think of an organisation as a firm, that organisation produces some good or service which is consumed, at least in part, by people outside the firm. But this isn't true of pirates. Pirates "produced" for their own consumption. There are two issues here: one is that they didn't really produce anything at all, they just redistributed wealth and second, there were no third party receiving the redistributed wealth. It could be argued that many charities main activity is to redistribute wealth but they redistribute it to third parties, not themselves (or so we hope).

So the lack of outside consumers seems a more arguable reason for thinking that pirates were not firms.

Bylund, Per (forthcoming). `Piracy, Inc.—on the bearing of the firm analogy to pirate organization', Review of Austrian Economics.